General Dynamic's Nuclear Sub Deal - Analyst Blog

Zacks Investment Research
Posted: Oct 18, 2011 3:15 PM
General Dynamic's Nuclear Sub Deal - Analyst Blog

Electric Boat, a wholly owned subsidiary of General Dynamics Corporation (GD), has received a contract modification worth $429.0 million from the U.S. Navy to provide planning yard work, engineering and technical support for nuclear submarines. The contract was awarded initially in October 2010, and will be worth approximately $1.2 billion over three years if all options are exercised and funded.

Per the contract, Electric Boat will provide design, engineering, material and logistics support, and research and development activities for active U.S. submarines and submersibles. Also, the company will be responsible for providing information services, planning, scheduling and technical support for submarine maintenance and modernization activities, training and facility support, and affordability/cost reduction support.

Electric Boat's engineering and design organization that comprises more than 3,000 employees will work for the contract. These employees work on all facets of the submarine life cycle from concept formulation and design through construction, maintenance and modernization, and eventually to inactivation and disposal with the help of their technical capabilities.

General Dynamics continues to benefit from strong congressional support for its programs in the 2011–12 defense budgets. Going forward, the company’s focus will be on revival in the business jet market along withprograms such as the Warfighter Tactical program and Common Hardware/Software III in the IS&T division. Similarly the Combat Systems and Marine Systems segments will receive a boost from higher volumes in the U.S. military vehicle business and ship programs DDG-51, Virginia-class submarines and the Mobile Landing Platform program.

However, the company is largely tied to the U.S. defense budget, where the threat of budget cuts is looming high. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

The company expects to release its third quarter earnings results on October 26, 2011. The Zacks Consensus Estimates for third quarter 2011 and fiscal year 2011 are currently at $1.77 per share and $7.20 per share, respectively.

Headquartered in Falls Church, Virginia, General Dynamics engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation. The company operates through four segments: Information Systems & Technology Combat Systems, Marine Systems, and Aerospace. The company mainly competes with Lockheed Martin Corporation (LMT) and Textron Inc. (TXT).

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